Sports team owners might be “sportsmen” (or showmen) who will sacrifice profit in order to achieve sporting success. At the upper limit these owners sought to win at all costs, subject to winning being constrained by a minimum profit, or maximum subsidy, constraint (Vrooman, 2007). Within this range several different objectives such as utility maximisation, win
maximisation, and prestige have been discussed in the literature as motives for club ownership.
The concept of utility maximisation was first applied to the objectives of a business by Williamson (1963). A manager’s utility depended upon the level of staff expenditure, level of output, and the ratio of reported profits to total profits. Therefore, the greater the discretionary investment a manager has control over the greater the utility derived. In order to generate this discretionary spending, a minimum level of profit must be achieved initially (Williamson, 1963).
This approach was first applied to the case of professional sport by Sloane (1971), as he sought to treat the ownership of a football club as a consumption activity. In Sloane’s study, non-economic objectives were identified which reflected the growth in the non-profit maximising model literature at that time (Dobson & Goddard, 2011). A similar argument was made by Zimbalist (2003), who suggested it was beneficial to view team owners as maximising their total return in relation to both consumption and investment, not just financial profit
Despite rejecting profit maximisation, Sloane (1971) did include profit as part of his model, although this was not considered as the most important objective. Significant weight was given to playing success, and this was highlighted as the most important factor in his work. Security, attendance or revenue, and health of the league were other key factors. Security was considered as highly important for some clubs who had to sell players to survive, whilst attendance was viewed as a form of success. The health of the league factor, recognised the mutual
interdependence of football clubs, and influenced performance. Finally, this model implied a financial solvency constraint, suggesting a minimum after tax profit must be recorded. Some evidence in support of utility maximisation was also found in relation to North American sport (Atkinson et al, 1988). They found that the talent choices of NFL teams did not relate to those which are present in the profit maximisation hypothesis. This was due to wage rates for players exceeding the estimate of their marginal revenue products. Hence, NFL owners sought both profit and private non-monetary benefits associated with winning (Atkinson et al, 1988).
With the introduction of other objectives into the analysis of sports team ownership, questions were raised as to the relative importance of these wider objectives. For instance, Kesenne (1996
& 2007) proposed the notion of win maximisation as the objective of sports team ownership subject to a minimum profit constraint. A league where win maximisation is the prevailing objective will have weaker competitive balance, larger spending on playing talent and larger wages for playing talent, compared to a league where profit maximisation was the objective for member clubs. Total revenue was lower in this type of league (Kesenne, 1996). Lower revenues were driven by lower demand (due to a reduced competitive balance), with the net result for this type of league being lower profits. In support of these arguments, Samagaio et al (2009) found that despite football’s increasing revenues, there has been a failure to enhance the wealth of shareholders. They found, in support of Lago et al (2006), that as revenues have increased so
have costs, concluding football clubs have sought to maximise sporting performance subject to achieving a minimum profit.
The notion of owners favouring sporting success is not a new construct. As we have seen local businessman in the past had taken control of local clubs because of their sporting enthusiasm (Sloane, 1971). But, the greater commercialisation of sport in general, and football in particular was supposed to weaken this. In their study of more recent English and Spanish football, Garcia-del-Barrio & Szymanski (2009) found support in both leagues for the objective of win
maximisation subject to a zero profit budget constraint.
The ownership of a football club seems, therefore, to involve a more nuanced range of potential non-economic objectives. The notions of the sportsmen owner and the pursuit of success were driven by a club owner being a football fan (Hamil & Walters, 2010). The idea of a fan owner was also used by Zimbalist (2003) who suggested that a motive of sports team ownership might even be ‘fun’. Furthermore, the ownership of a team, particularly if it is successful, might also benefit an owners’ ego (Zimbalist, 2003). In these terms, there might be a strong element of
self-satisficing behaviour in team ownership. Aside from these psychological benefits, team ownership might also be influenced by a desire to enhance personal and social prestige. While this was initially viewed as being an enhancement of prestige in the local region (Sloane, 1971), more recently the ownership of a sports team has been viewed as a trophy asset (Hamil &
Walters, 2010), with benefits of celebrity and vanity to be accrued by a team owner, even at the expense of profits (Hamil & Walters, 2010).
Traditionally, some local businessmen invested in a football club through a sense of civic duty, providing a particular benefit in the case of a financial crisis (Sloane, 1971, Hamil & Walters,
sought to maximise global long-term returns. These approaches implied that a range of potential objectives are held by team owners but they also raise consideration of the extent to which these objectives are inter-linked.
However, how can the exact objectives of team owners be identified? It has been common to deduce these ‘after the event’ (ex-post). The analysis of club balance sheets and profit and loss accounts to symbolise club objectives has been common practice. For example, the early yearly losses made by Roman Abramovich at Chelsea clearly suggested that he followed non-profit objectives (Sloane, 2006). However, Fort (2000) and Fort & Quirk (2004), questioned the effectiveness of this method, while Moorhouse (1999) raised questions about the nature of the data used. Their primary concern related to the nature of profit and differences in economic and accounting profit. Both Fort (2000) and Fort & Quirk (2004) argued that economic profit should be considered as the object of analysis, as accounting profit was easily manipulated to avoid tax payments. However, there was no evidence presented which suggested economic profit would be positive in these arguments (Sloane, 2006).